In the new issue of Regulation, economist Pierre Lemieux argues that the recent oil price decline is at least partly the result of increased supply from the extraction of shale oil. The increased supply allows the economy to produce more goods, which benefits some people, if not all of them. Thus, contrary to some commentary in the press, cheaper oil prices cannot harm the economy as a whole.

Two long wars, chronic deficits, the financial crisis, the costly drug war, the growth of executive power under Presidents Bush and Obama, and the revelations about NSA abuses, have given rise to a growing libertarian movement in our country – with a greater focus on individual liberty and less government power. David Boaz’s newly released The Libertarian Mind is a comprehensive guide to the history, philosophy, and growth of the libertarian movement, with incisive analyses of today’s most pressing issues and policies.

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Tag: Sequestration

The Obama administration tried to turn the doom-and-gloom up a notch over the weekend, releasing reports on how many employees each state could lose if sequestration isn’t stopped. Teachers were prominently featured, of course, because nothing scares people like the prospect of their kids not getting educated.

“Could” is a crucial word here, because it is entirely possible that savings could be found that would negate the need to dismiss people. For instance, unnecessary purchases could be cancelled, or all employees could take small pay cuts. But suppose worst-case firings did come. How horrific would the education damage be?

It turns out, once you look at the overall staffing picture, not very. Using a compilation of the state reports put together by the Washington Post, as well as Digest of Education Statisticsstaffing data, we assembled the following table calculating how big a percentage of public school employees in each state would disappear in the worst-case scenario. Unlike the administration, we included the numerator and the denominator.

Yes, some parts of the budget are disproportionately impacted, such as defense. But even the defense budget climbs over the 10-year period and the United States will still account for close to 50 percent of global military outlays when the dust settles.

You know the cliché: America’s fiscal condition might be grim, but lawmakers should avoid the “meat ax” of across-the-board spending cuts and instead use the “scalpel” of targeted reductions. …Targeted reductions would be welcome, but the current federal budget didn’t drop from the sky. Every program in the budget—from defense to food stamps, agriculture, Medicare and beyond—is in place for a reason: It has advocates in Congress and a constituency in the country. These advocates won’t sit idly by while their programs are targeted, whether by a scalpel or any other instrument. That is why targeted spending cuts have historically been both rare and small.

Bergner explains that small across-the-board cuts are very reasonable:

The most likely way to achieve significant reductions in spending is by across-the-board cuts. Each reduction of 1% in the $3.6 trillion federal budget would yield roughly $36 billion the first year and would reduce the budget baseline in future years. Even with modest reductions, this is real money. …let’s give up the politically pointless effort to pick and choose among programs, accept the political reality of current allocations, and reduce everything proportionately. No one program would be very much disadvantaged. In many cases, a 1% or 3% reduction would scarcely be noticed. Are we really to believe that a government that spent $2.7 trillion five years ago couldn’t survive a 3% cut that would bring spending to “only” $3.5 trillion today? Every household, company and nonprofit organization across America can do this, as can state and local governments. So could Washington.

And he turns the fairness argument back on critics, explaining that it is a virtue to treat all programs similarly:

Across-the-board federal cuts would have to include all programs—no last-minute reprieves for alternative-energy programs, filmmakers or any other cause. All parties would know that they are being treated equally. Defense programs, food-stamp recipients, retired federal employees, the judiciary, Social-Security recipients, veterans and members of Congress—each would join to make a minor sacrifice. It would be a narrative of civic virtue.

It’s worth noting, however, that the sequester would not treat all programs equally. Defense spending is only about 20 percent of the budget, for instance, yet the Pentagon will absorb 50 percent of the savings (though defense spending still increases over the next 10 years).

At the risk of oversimplifying, the sequester basically applies to so-called discretionary spending. So-called mandatory spending accounts for a majority of federal spending, but it is largely exempt, so entitlement reform will still be necessary if we want to address the nation’s long-run fiscal challenges.

Speaker Boehner says that the House will not pass another increase in the debt ceiling unless the White House and congressional Democrats agree to cut spending by an equal or greater amount. That’s the same line in the sand that Boehner drew during the previous debt ceiling showdown in 2011.

The deal that Republicans ultimately agreed to — The Budget Control Act of 2011 — promised to reduce the growth in spending over the next ten years by $917 billion. In exchange, the president got to increase the debt ceiling by $900 billion. According to the House Republican leadership, the trade was a victory because the debt increase was smaller than the spending cuts. Of course, that’s nonsense. Not only were there no real spending cuts, the federal debt has proceeded to jump another $1.8 trillion since the president signed the bill less than a year and a half ago.

The other part of the deal hasn’t turned out any better. The BCA created a “Super Committee”, tasked with achieving $1.2 trillion in deficit reduction over ten years. When the committee inevitably failed, the agreement stipulated that the deficit reduction instead be achieved through a combination of automatic cuts to defense and non-defense spending (“sequestration”). Republicans and Democrats promptly made it clear that they would figure out a way to avoid the spending cuts.

The sequestration spending cuts that Republicans and Democrats want to avoid allowed the president to raise the debt ceiling by another $1.2 trillion. In sum, the federal debt will have gone up $2.1 trillion in exchange for no spending cuts in the present and a promise to increase spending at a lower rate over the next ten years.

There is zero chance that the Democrats would (or will) agree to a deal that seriously cut $1 for every $1 increase in the debt ceiling. Heck, I’d be shocked if a majority of Republicans would support it. The House Republican leadership obviously knows this—and it’s not like the GOP is prepared to “shoot the hostage” to begin with—so expect another debt ceiling increase with no substantive spending reforms.

Rep. Gerald E. Connolly, a Democrat representing the federal workforce, frets over the impact of sequestration or any alternative on his Fairfax County district: “Undoubtedly, we will take a hit….It’s going to result in a steady retrenchment in government investment in both the civilian and defense sectors. That’s going to affect employment and the robustness of our economic growth in this region.”

Of course, this is a “hit” – or more likely a nick – that comes after a doubling of the federal budget in a decade. And in the past weeks, the Washington Post has done a good job of reporting the impact of all that taxed and borrowed money on the Washington area. For instance:

The Washington region has emerged from the recession looking even more affluent compared with the rest of the country, boasting seven of the 10 counties with the highest household incomes in the nation, new census numbers show.

With a median household income surpassing $119,000, Loudoun County heads the list. Fairfax County, at nearly $106,000, is second. Both have held the same positions for several years running….

The rankings in the 2011 American Community Survey released Thursday expand Washington’s dominance among high-income households, reflecting a regional economy that was largely cushioned as the recession yanked down income levels elsewhere. Household incomes rose in most counties around Washington last year, even as they continued to sink around the country.

The stability of an economy built on the pillars of the federal government, its legions of contractors and a flourishing high-tech sector is evident in the income rankings.

In 2007, before the recession began, five counties in suburban Washington made it into the top 10. By 2010, there were six. The seven in the latest ranking is an all-time high.

And where does that money go? To housing, certainly (thanks, America!), as the Post noted in an article on the “red-hot real estate market”:

It didn’t look like a house anyone would pay $400,000 extra for.

Several walls inside the gray townhouse with blue trim were streaked with water stains. The first floor was noticeably uneven. And termites had dined in front.

The big pluses: It was 2,850 square feet, had off-street parking, and was in walking distance of Union Station [and thus of Capitol Hill]….

Two weeks and 168 bids later, the house — in the 800 block of Fourth Street NE — was sold this month for $760,951 to an unidentified buyer….

While much of the nation is still struggling to emerge from a historic housing-market meltdown, the District is reliving its boom days. High rents, low interest rates, low inventory, and a flood of new residents in their 20s and 30s are making parts of the city feel like it’s 2005 again.

The median home sale price in the District is up 14 percent from last year, according to RealEstate Business Intelligence (RBI)….

Bullish real estate agents say it is only a matter of time until those areas catch up as well. There is no talk of “bubbles” or fallout from a dive off the “fiscal cliff.” People are still moving to the Washington area, where the population grew by 122,000 from 2010 to 2011, Census Bureau data show.

And for those with money left over after paying Washington real estate prices, there are the finer things in life, the things that used to be for hedge fund managers in New York and tech innovators in Silicon Valley:

The defense contractors and their allies and advocates in Washington have been beating the drum against sequestration for over a year. They’ve commissioned studies purporting to show that sequestration will throw hundreds of thousands of people out of work. They’ve embarked on a “stop sequestration” road show, and boosted spending on advertising and gimmicks, including the Countdown to Sequestration clock.

The contractors’ full-court press isn’t working. Polls show that the American people are more interested in cutting defense spending than domestic spending to reduce the deficit. (See, for example, The Economist/YouGov poll, .pdf, Q15) And they, and especially Republicans and independents, are opposed to paying higher taxes to fund a bloated Pentagon (.pdf, Q56).

The public isn’t falling for the lobby’s scare campaign for a few reasons. First, U.S. military spending remains near an all-time high in real, inflation-adjusted dollars. Second, sequestration would reduce the budget to 2007 levels, and reductions along those lines are consistent with other post-war drawdowns. Third, while Americans overwhelmingly support the troops, they appreciate that not every dollar spent on the military is spent wisely.

The United States will retain a state-of-the-art military even if total Pentagon spending declines by 10 to 15 percent. Such reductions might actually induce policymakers to be more responsible when it comes to military intervention abroad. The leading opponents of sequestration are big fans of open-ended, nation-building missions, but they are a small and shrinking minority. Most Americas have learned the painful lessons from the wars in Iraq and Afghanistan, and they are determined to avoid those sorts of expensive and counterproductive wars in the future.

A smaller U.S. military that costs less money cannot be expected to be everywhere all the time. U.S. troops should not be the first responders to every 911 call. Other countries will have to step forward to take responsibility for their own defense, and contribute their fair share to address common security challenges.